As rumored last week, two major publishing companies Random House and Penguin have merged, creating one big Franken-publisher that will control 25% of the book market. Random House is the biggest publisher in the business, and is owned by German conglomerate Bertelsmann. Penguin is owned by British parent Pearson.

The move is part of the greater trend toward consolidation, but allows the new merged publisher to better compete against Amazon, Google and Apple, which are increasingly putting pressure on traditional publishers.

Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers,” said Pearson CEO Marjorie Scardino. Thomas Rabe, chairman and CEO of Bertelsmann, said: “With this planned combination, Bertelsmann and Pearson create the best course for new growth for our world-renowned trade-book publishers, to enable them to publish even more effectively across traditional and emerging formats and distribution channels. It will build on our publishing tradition, offering an extraordinary diversity of publishing opportunities for authors, agents, booksellers, and readers, together with unequalled support and resources.”

However it also offers fewer options for agents and authors, and less clout in negotiating.

Random House has been one of the early adopters of graphic novel publisher, with such blockbusters as Persepolis and Building Stories from its Pantheon arm; they also distribute Kondansha’s manga offerings, and DC Comics. Penguin has been holding back from the comics movement but just recently announced new lines for both adults and children.

Penguin Group USA is among the five major publishers named in a lawsuit filed last spring by the Justice Department, which accused those publishers and Apple of colluding in the pricing of e-books. Three publishers — Hachette Book Group, Simon & Schuster and HarperCollins — settled. Penguin and Macmillan have not. Random House, the largest book publisher in the United States, was not named in the lawsuit.

“A combined Random House and Penguin would be a supplier so large it would be very difficult for any anyone to dictate terms to,” said Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a consultant to publishers. He added: “You’re allowed to collude if you’re combined.”

The above New York Times story has lots of gloomy predictions from insiders:

Another New York agent, who insisted on anonymity to candidly discuss the deal, was more pessimistic. “This group would be HUGE. NOT good for authors,” the agent wrote in an e-mail

James L. McQuivey, a media analyst at Forrester Research, said the early panic was justified. “Agents should be terrified because it would give them even fewer people to play against each other,” he said.

But, he added, the consolidation of some of the remaining “big six” publishing houses is inevitable. “The need to get some kind of grip on the future of book publishing is driving every single one of these top six publishers in often unconventional ways,” Mr. McQuivey said.

The Big Six — soon to be Big Five—publishers don’t want to be like the record industry, which shrank from six to three when iTunes and Napster were done with them.

Heidi MacDonald is the founder and editor in chief of The Beat. In the past, she worked for Disney, DC Comics, Fox and Publishers Weekly. She can be heard regularly on the More To Come Podcast. She likes coffee, cats and noble struggle.